DBRS Morningstar Confirms All Ratings of BX Trust 2021-SDMF

DBRS Limited (DBRS Morningstar) confirmed all classes of the Commercial Mortgage Pass-Through Certificates, Series 2021-SDMF as follows:

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (high) (sf)
-- Class D at A (low) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations, as exhibited by the high collateral occupancy rate and healthy revenue levels. The loan is secured by the borrower’s fee-simple interest in a portfolio of 32 Class B and Class C multifamily properties throughout various submarkets of the greater San Diego area. The properties are predominantly traditional, garden-style apartment communities with the exception of one age-restricted property, which consists of 130 units and at issuance accounted for 2.2% of the allocated loan amount (ALA). The loan sponsors are Blackstone Real Estate Partners IX L.P. and TruAmerica Multifamily LLC. The transaction has a partial pro rata structure allowing for pro rata paydowns for the first 30% of the principal balance. Individual property releases are subject to a release price of 105% of the ALA for the first $240 million principal balance, with the release price increasing to 110% thereafter. To date, no properties have been released.

The loan was added to the servicer’s watchlist in April 2023 for its upcoming loan maturity in September 2023 as well as a number of minor deferred maintenance issues. The $800.0 million two-year, floating-rate, interest-only loan has three one-year extensions for a fully extended maturity date of September 2026. According to the servicer, the borrower has indicated intent to exercise the first extension at maturity, however has not yet provided any formal notice. Furthermore, the borrower must purchase an interest rate cap agreement with each extension and given the current interest rate environment, the costs for those have increased significantly in the past year.

Occupancy and rental rates remain stable across the properties, averaging 94.3% and $1,716 per unit as of the December 2022 rent rolls, respectively, compared with the YE2021 occupancy rate of 97.8% and average rental rate of $1,484. The loan reported a YE2022 debt service coverage ratio (DSCR) of 1.16 times (x), which was below the YE2021 DSCR of 1.67x primarily because of a 31.6% increase in debt service. The YE2022 net cash flow (NCF) was $38.7 million, which remains below the YE2021 and DBRS Morningstar NCFs of $42.2 million and $39.5 million, respectively. The decline in NCF year over year was primarily driven by an increase in payroll, advertising and marketing, and general and administrative expenses, while effective gross income reported a 7.2% increase for the same time period. According to Reis, the San Diego market had an average asking rent of $2,333 per unit and an average vacancy rate of 3.7% in Q1 2023. Although debt service and operating expenses increased in 2022, the portfolio remains well occupied, with average rents above issuance.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (July 4, 2023) at https://www.dbrsmorningstar.com/research/416784.

All credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 16, 2023; https://www.dbrsmorningstar.com/research/410912).

Other methodologies referenced in this transaction are listed at the end of this press release.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at [email protected].

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS Limited
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Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

North American Single-Asset/Single-Borrower Ratings Methodology (February 23, 2023; https://www.dbrsmorningstar.com/research/410191)
DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022; https://www.dbrsmorningstar.com/research/402646)
North American Commercial Mortgage Servicer Rankings (September 8, 2022; https://www.dbrsmorningstar.com/research/402499)
Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023; https://www.dbrsmorningstar.com/research/415687)
Legal Criteria for U.S. Structured Finance (December 7, 2022; https://www.dbrsmorningstar.com/research/407008)

A description of how DBRS Morningstar analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/417279.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].